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How to Prevent a Coronavirus Depression

Paul Romer
 

By Paul Romer (original source The New York Times) 

“Covid-19, the most threatening pandemic of the past century, has precipitated both a health crisis and an economic crisis. The strategies that governments have adopted to deal with each crisis separately are contradictory and risk catastrophic, long-term failure.

Social distancing is an emergency measure that will save lives but brings economic activity to a near-halt. During the worst of the Great Depression, 25 percent of the labor force was out of work. Several days ago, on March 17, Treasury Secretary Steven Mnuchin warned Congress that the unemployment rate could soon reach 20 percent. The economic news since then has been ominous. A growing fraction of the population — about one in four Americans — is under orders to stay home.

Loan guarantees and direct cash transfers will stave off bankruptcy and default on debt, but these measures cannot restore the output that is lost when social distancing keeps people from producing goods and services.

To protect our way of life, we need to shift within a couple of months to a targeted approach that limits the spread of the virus but still lets most people go back to work and resume their daily activities.”

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